Can the Elephant Stomp on the Gecko, Farmers and Progressive?

(MoneyWatch)  Insurers that "direct" market their auto and home insurance products to consumers through television ads, thus cutting out insurance agents, are doing quite nicely in the U.S. even during the recession. All you need to see is the success of GEICO's "Gecko." But the lovable lizard could soon find itself lost in an unfriendly jungle.

Admiral Group Plc CEO Henry Engelhardt has announced plans to launch yet another "British invasion" of this country by selling a "direct" car insurance product that's made it the best performing financial stock on London's FTSE 100 Index this past year. The U.S. unit will be known as Elephant.com
"The elephant is the biggest animal in the jungle (and) it could step all over a gecko," said Engelhardt in a Bloomberg interview.

GEICO, owned by Warren Buffett's Berkshire Hathaway Corp., isn't the only U.S. direct insurer that should be worried. 21^st Century, formerly part of American International Group and now owned by Zurich, operates in the U.S. under the Farmers Insurance Group name. And then there's Progressive, which is running neck-and-neck with GEICO.

"There's a lot of flux in this market, and it's a place where Admiral obviously thinks it could make inroads," says Insurance Information Institute spokesman Michael Barry in an interview with BNET Finance. The Admiral announcement comes as no surprise to Barry and others.

Despite its "Elephant" name, Admiral is likely to start small, marketing only in Virginia in 2010 before expanding to other states. Barry said there are also likely to be "cultural challenges," as Admiral adjusts to the lingo and eccentricities of the U.S. market, such as state regulation rather than national.

But Admiral's track record indicates that it takes risks and grows fast. Having started with 57 employees just 16 years ago, it currently has no debt and had a return on equity of nearly 57 percent in 2008. It outperforms its British rivals by selling more policy add-ons and so avoiding losses.

It also gives the entire property casualty industry one more thing to worry about, as if it didn't have enough. Yesterday Standard & Poor's said it was keeping its "negative outlook" on all North American insurance sectors except reinsurance, and that it expected downgrades in the industry to exceed upgrades for the next six to 12 months.